Kia Nejatian

Apr 13, 2020

4 min read

Recessions Are Surprisingly Solid Ground for Startups — Here’s Why

The economy is in a serious downturn that has many people concerned about the economic prospects for the future. And although the economic situation is serious, there is something that new business owners, prospective owners and investors need to remember during this period of uncertainty: recessions may be bad for some types of business, but they make for a surprisingly solid breeding ground for startups.

Some of the world’s most successful businesses were born during economic recessions — consider Airbnb and Uber, two businesses that are now considered as vital to the world as any decades-long industry — and this current economic situation may lay those same seeds for successful startup businesses. Let’s take a closer look at some of these notable businesses that have their starts in recessions and what modern businesses and startups can learn from understand how and why some of the best companies in the world have begun with recession.

Startups in a Recession: Challenges, Fortitude and Stability

Consider all of the challenges that business owners, large and small, must face when starting their own business. It is no wonder that most businesses fail, no matter the economic situation of the world when they start. Recessions, however, present a wholly unique economic situation that lends itself well to startups; namely, the sheer challenge of starting a business during a recession forces startup owners to completely rethink their approach to business. Since there are no guarantees or economic safety nets, startup owners must rely on sheer force of will to implement better marketing strategies, to bolster creativity, and even to pivot their company whenever necessary to get a stronger foothold in the industry.

The uncertainty of the economy during a recession means that startups are more capable than ever of exploding onto the market with something innovative that catches the eye of the world during a period of financial uncertainty.

Looking to the Past: Examples of Successful Businesses Created During Recessions

Successful businesses born during recessions are not a new trend. One of the oldest examples of a successful business that began in the midst of a recession is General Electric, which was founded back in 1890. In 1890, the global economy as a whole was in a recession, but the company managed to push through; this was despite facing a second recession in 1893 during a hard-hitting recession in the United States. But by 1896, not only was General Electric still around, they had become one of the first 12 founding companies on the Down Jones Industrial Average — and yes, it is still there to this day.

Another, and much more colorful example, is the Walt Disney Company. The Walt Disney Company was founded in the midst of the Great Depression. The serious economic downturn of the world provided to be the spark that the co-founders of the Walt Disney Company needed to focus on creating something wholly innovative and new — animated shorts about a mouse that would later become the popular and media-dominating Mickey Mouse. The company’s success in the midst of an economic recession led them to take risk that changed the film industry forever: they created the technologically unheard-of full length animated film, Snow White and the Seven Dwarfs. The film would become an international sensation and would pave the way for the Walt Disney Company to gain a permanent foothold in the film and entertainment industry.

The Startup Difference: What Sets Startups Apart

Startups have a significant advantage compared to other types of businesses during a recession. What sets startups apart? The key lies in two significant factors: profits and disruption.

Startups born in a modern recession have to be driven by profits instead of relying on investors or other types of funding. Therefore every decision made by a startup is going to be done with an attempt to approach their business smarter and harder in an attempt to grasp profits as quickly as possible.

Another reason why startups have an advantage during a recession is that they have the ability to be what is known as an industry competition disruptor. This means that they have the ability to disrupt the status quo held by the competition at a critical juncture. Netflix, for instance, pivoted in 2009 to focus on video streaming; this led to them becoming one of the most notable competition disruptors in the world.

Not every startup during this latest economic recession will be a Walt Disney Company or a Netflix — but the resilience brought upon by the challenges of a recession means that startups are more likely to survive to turn a new profit in the future.